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Alternative Market Briefing

Hedge funds take a hit in early Q4 but some strategies resilient

Friday, October 26, 2018

Laxman Pai, Opalesque Asia:

Hedge funds were down during the first half of October due to the underperformance of CTA, L/S Equity, and Special Situations strategies, Lyxor said in its monthly Hedge Fund Brief.

Meanwhile, Merger Arbitrage, Fixed Income Arbitrage, Global Macro and L/S Equity Market Neutral strategies were resilient.

Higher bond yields and political uncertainty took a toll on risk assets early October. In the U.S., strong macro data releases raised fears of overheating, lifting Treasury yields since late August, said the report.

Concurrently, the standoff between Italy and the EU on fiscal expansion, and the rocky trade negotiations between the U.S. and China, have amplified market concerns.

"In our view, worries about overheating are overdone. The U.S. economy is set to decelerate as the fiscal boost will soon fade. We don't think the Fed will accelerate tightening. In the midterm, we expect nonetheless the volatility regime to remain high compared to recent years," said Lyxor research team focusing on hedge fund performance, market perspectives and portfolio positioning.

"Our views on alternative strategies were comforted in Merger Arbitrage and Relative Value Arbitrage (Overweight), but challenged on CTAs. Trend followers took a hit recently due to long equity positioning as well as fixed income and commodity allocations," they added.

The drawdown was comparable to earlier trend reversal episodes this year. The selloff has led......................

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